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The United Arab Emirates (UAE) has the most competitive economy in the Middle East and North Africa (MENA), says a new study from the World Bank Group and the World Economic Forum.

The Arab World Competitiveness Report 2018, launched today, ranked the UAE as the 17th most competitive country in the world. The other MENA nations to crack the top-30 globally were Qatar (25th) and Saudi Arabia (30th). The rankings are based on 12 factors, from education to infrastructure, that are critical for productivity and economic growth.

While the report cited improvements over the last decade in areas like infrastructure development and technological advancement across the region, it said many countries are struggling to diversify their economies and develop a vibrant, competitive private sector that can foster innovation and job creation. It said the region will need to generate 58 million jobs by the year 2040 to maintain unemployment rates and even more to lower them.

"The world is adapting to unprecedented technological changes, shifts in income distribution and the need for more sustainable pathways to economic growth, "added Mirek Dusek, Deputy Head of Geopolitical and Regional Affairs at the World Economic Forum. "Diversification and entrepreneurship are important in generating opportunities for the Arab youth and preparing their countries for the Fourth Industrial Revolution."

The report found that in recent years, countries in the Gulf Co-operating Council (GCC) have made a concerted effort to support innovation and provide crucial seed funding to start-ups.

For example, Saudi Arabia created a $1 billion fund to invest in small and medium enterprises, while Bahrain ($100 million) and Oman ($200 million) have also launched funds to support start-ups. In Lebanon, the central bank pledged to invest $600 million into innovative firms. Finally, the central bank of Egypt is pushing banks to gradually raise their financing for smaller businesses to 20 percent of their total credit portfolio by 2019.

"We hope that the 2018 Arab World Competitiveness Report will stimulate discussions resulting in government reforms that could unlock the entrepreneurial potential of the region and its youth," said Philippe Le Houérou, IFC’s CEO. "We must accelerate progress toward an innovation-driven economic model that creates productive jobs and widespread opportunities."

Angel investment networks are also growing in a few countries in the Arab World, especially in UAE where investment in tech start-ups have jumped from to $1.7 billion from $100 million over the last couple of years. These networks are critically important as they provide financing, mentorship and market-access connections to entrepreneurs. The report said governments could improve the entrepreneurial ecosystem by drafting more policies that encourage risk-taking and innovation, and creating legislation that is supportive of angel investors and seed funds.

"Arab countries currently investing in a foundation for sustainable and diverse markets, while creating jobs and embracing new digital trends, are on the path to competitiveness," said Najy Benhassine, Director of the Finance, Competitiveness and Innovation Practice at the World Bank Group. "The prospects for many countries are the outcome of reforms, incentives and an investment in human capital."

The report recommended countries diversify their economies and move away from a model of government-led growth and lessen reliance on natural resources exports. It commended countries that made significant progress in infrastructure development to enhance competitiveness. For example, in GCC countries, the total value of infrastructure projects amounted to $2.7 trillion in 2017. In North Africa, Egypt invested in a new extension of the Suez Canal and is expanding two of its major ports, while Morocco’s Tangier-Med Port, has become one of the main gateways to the Mediterranean, and is set to become one of the largest ports in the world once its expansion is completed.

The report is part of a series of studies that examine competitiveness across different regions. It is also part of recent partnership between IFC and the World Economic Forum that aims to support entrepreneurs in the Arab World and promote private sector development.